Reading Paul Graham’s wonderful post on How to Convince Investors prompted me think back over my last 5 years in venture capital and what traits stood out among entrepreneurs that I was most impressed by.

Of course this is a subjective view, and based on a cohort of a few thousand people. There will always be many exceptions but I still find it helpful as a reference list. As an investor in early stage companies, across a broad range of technologies and industries, backing great entrepreneurs is the easiest way for me to increases my odds of success.

Entrepreneurs who have impressed me most tend to be:

soft spoken and amazingly calm, even under stress. They don’t appear to be easily over-excited by success or failure.

extremely product oriented. They are not enamored by technology, creativity of their idea, or their past laurels. It’s all about the product for them.

resourceful with time and money. They are somehow able to get so much done with so little.

surround themselves with top talent and network, and shun mediocrity at all times.

convinced they will eventually win even if they don’t yet know how. Their attitude gets reflected in the culture of companies they build.

extremely knowledgable about their space. It doesn’t matter their age or complexity of industry they are tackling. They can explain their vision in starkly simple ways, but if I want to double-click on any topic, they come prepared to be challenged.

unashamed if they don’t have all the answers. They don’t try to BS their way out of a question and get back to me later if it was a relevant question.

charismatic and pull me into their conversation. They don’t just deliver facts and business models, but help me see what’s going on in their mind.

genuine in their answer to: “what are you looking for in an investor?”

understand the motivations of professional investors. Without letting it interfere with their vision, they are able to help investors see what success could look like.

It is the greatest privilege of my job to meet amazing entrepreneurs and company builders on a regular basis. When I am lucky I am able to back some great entrepreneurs. At other times I may have let my own smartness get in the way of success. Either way, I know I will succeed mostly because amazing entrepreneurs will find ways to solve int’g and relevant problems in creative ways, and will allow me to partner with them.

Until only a few years ago, I was a first-time entrepreneur struggling to get attention & advice from experienced entrepreneurs and investors. I did not need funding from them (we were well funded by angels – to the tune of $23m), but I was looking for people who knew the startup world and could give advice on how to build a business.

I had co-founded a company in the not-so-sexy space of automotive technologies and this was before the hype around cleantech had set in (this was a time when a prominent Boston VC firm asked if we were more like IT or biotech, when we pitched them!). Even the MIT Energy Club had not formed as yet. I eagerly sought advice and feedback but it was hard to gain access. I did not know the VC crowd, I was previously a nerdy Ph.D student who had stumbled into management consulting as my first job out of school before starting my company, and there were not many experienced entrepreneurs in the area with similar interests. Whenever somebody more experienced agreed to give me some time for feedback and thoughts, I would soak it in eagerly. In many cases I wished I had gotten the advice earlier, before we had made some important decisions around our products, hiring and financing – but it was still very welcome. I loved to learn by getting feedback from others and, in fact, I started a blog and began conversing with the world on twitter to increase my reach.

Fast forward a few years. I am now a VC and perhaps among the few ways that I believe I can help new entrepreneurs is through my network and via feedback, advice, and sharing of tips based on learnings from multiple enterprises across the sector and at difference stages of growth. I love meeting first-time entrepreneurs and I purposely carve out time in my schedule to spend with student entrepreneurs who may not at all be at a stage where we would invest in them.

With that background, it was a surprise to me that three times last week I heard from students that some their university advisors and teachers were holding them back from meeting outsiders, esp anybody involved in the investing world. What a crock of BS these guys are peddling to the students in the name of advice! These are probably the same guys who are still teaching their students how to write lengthy business plans and urging them to worry more about patents rather than understanding if the product has any real value prop to create a sustainable business. Some students unfortunately take their advice too seriously, and frankly are totally missing out on learning from real world practitioners how business ideas get generated, teams built and successful businesses developed.

After the most awesome student population, perhaps the biggest thing going for Boston is its entrepreneurial ecosystem that is willing to give and nurture teams and ideas when they are still on paper. Yes, we may not be as good at this as Silicon Valley and are dragged through the mud regularly for that, but we are certainly ahead of almost everywhere else. Our entrepreneurs, founders, executives, investors and lawyers/bankers etc all give a lot of their time (and money) to help and support young entrepreneurs. They do this as a way of giving back, to cultivate this community, and because many of us studied in the very same educational institutions. I know of this first-hand because I have been involved with many organizations locally where this generosity & ‘pay it forward’ attitude is commonplace.

Anyways. I will stop my rant now. I guess I only wish to advise students and other first-time entrepreneurs to reach out and take advantage of the tremendous ecosystem here that is eager to help, advise and see you become successful in your ventures. Don’t listen to those who either never built a startup from scratch themselves, or never had to be in a position where advice was hard to find. Don’t wait until you are in trouble to reach out to those who can help you. Build bridges early, develop your network when you don’t really need it, become generally resourceful and don’t make mistakes that others (including myself) made in the past. If nothing, just know from my previous experience that those same friendly ‘lets grab coffee’ meetings are harder to come by when you are no longer a student. Advice may be cheap. But take it even if you don’t act on it.

When you, as an entrepreneur, are in discussions with an investor and they tell you their decision is that its not a good fit right now but they want to stay close and track the company, what is really going on? Should you call on them periodically and give them updates? Should you wait until they call back? Are there milestones you should hit before making the next connection? Are they passing on you and probably don’t want to think about this opportunity again?

Two events made me stop and think about this. (1) I recently said this to a company myself, and (2) an entrepreneur friend of mine heard this from an investor, he kept calling upon the investor periodically, and suddenly the investor stopped responding to his emails/calls.

I think investors say this to entrepreneurs more often than they would admit, and half the time don’t realize that they might be leaving entrepreneurs, especially first-time entrepreneurs, guessing what is going on. In my opinion, there are at least two reasons why investors say this. And I believe investors should provided more clarity around this comment to the entrepreneurs than many currently do.

1. In many industries, investors have key metrics in mind that they think provide an adequate picture of how a company might be performing. These metrics may include absolute number and/or growth in eye-balls, downloads, members, paying members, customers, revenue etc (for software/internet type companies) or cost, performance, reliability/durability etc (for more engineering/hardware type companies). When investors come to understand certain metrics as key performance indicators of traction or sustained product improvement, they want to see real numbers before making an investment. And not just a snapshot but a trend. Mark Suster wrote a nice article describing his investment in lines not dots, and that analogy holds true for more hard engineering/hardware/materials type businesses as well. When investors are not satisfied with the data, i.e. either not enough of it is as yet available, or its a mixed bag without clear sustained trend,s then they are likely to tell entrepreneurs that they want to track and keep an eye on those metrics. Unfortunately many investors don’t fully describe this reasoning to the entrepreneurs. Maybe they are not so confident that their metrics are the right ones in the first place! But I wish they did so the entrepreneurs would know when their company might actually become interesting to that investor again. It would save a lot of time and polite no thank yous on either side.

2. While some seed investing today seems to be getting done in rapid fire mode, I have come to believe that investors should really only invest when they have built a strong personal conviction around a potential investment opportunity, even when it is a small check to write. In general this is true for individual investors as well as in partnerships. It is hard to lean forward, bang on the table, and commit personal time to helping the start-up going forward unless a high degree of personal conviction is reached. And in early stage investing that I focus on, often that conviction is neither determined via the metrics I stated above or a well-written business plan. Often that conviction is based on feelings about the space in which the enterprise is going to be built, or the quality of the entrepreneur(s). Since both these measures are so qualitative, it is often hard to describe to the entrepreneur the unease that an investor might feel around an investment opportunity. One easy way out is to punt the issue and call it a “track”. This is not fair to the entrepreneur but happens often enough that it should be called out as seriously bad practice. Just say no, help them in any way you can in the time you can volunteer, and move on.

If you are an entrepreneur and you hear that from an investor, including me, please do ask back which one of the two reasons above led to that decision. It will help make future communications more efficient and effective.

Boston’s Innovation Month is in full bloom and there is tremendous excitement in the local entrepreneurial ecosystem. We are seeing a level of startup activity that has not been seen in almost a decade, with new companies emerging in both new and old sectors: e.g. IT, Life Sciences and Cleantech.

There are many reasons why Boston remains a hotbed of innovation and entrepreneurship: fantastic research output from local universities, presence of top business schools, significant corporate footprint in growth sectors, and availability of investment capital for early stage companies. In addition to above, there is also tremendous talent available for startups to recruit from. It is reported that more than 250,000 students study in institutions of higher learning just around Cambridge and Boston, and many more beyond that. This is an amazing talent pool that refreshes each year, and while it participates actively in the entrepreneurial ecosystem, it is my belief that it still remains largely underdeveloped.

A little over a year ago a few of us got together in a room to discuss the local startup deal flow and realized that we were not seeing as many awesome ‘student’ entrepreneurs as we would expect from a region like ours. Instead of only debating reasons for it, we decided to create a program to actively find student entrepreneurs and encourage/promote/support/mentor them. Our thesis was, and remains, that if all graduating science and engineering majors (and grad students as well) actively considered entrepreneurship as a viable career option, we would not only see a dramatic increase in startup activity, but we would also see the quality of student entrepreneurs improve. We think we may not be seeing as many great student entrepreneurs emerge partly because they choose more typical career paths before our entrepreneurial ecosystem plants the startup bug in them.

Under the auspices of The Indus Entrepreneurs (TiE), we kicked off a program last year (called ENTER) to promote informal and frank interaction at local science and engineering universities between students who are recommended by their own peers as having potential to be the next Bill Gates, Mark Zuckerberg, Desh Deshpande, and successful founders/CEOs and investors. We started with a town-hall type meeting in the fall where Chris Hughes (co-founder Facebook), Paul English (co-founder Kayak), Jeff Taylor (founder, Monster.com) and approximately 300 students and entrepreneurs attended, and over the past year organized monthly ‘meet-ups’ at Dartmouth, Boston University, Babson/Olin colleges, MIT and Harvard.

Jeff Bussgang, Flybridge Capital, has a nice post on why VCs blog/tweet. According to his back-of-the-envelope calculations, 10-15% of all VCs blog or tweet. I would add a few more reasons why they do so:

VCs in competitive markets, now more than ever before, need to appear (and hopefully be) accessible to entrepreneurs. Blogs allow VCs to be visible, appear human & approachable. Hey, I have never met Fred Wilson or Brad Feld but via their tweets I even know what Fred’s wife writes about or how much Brad weighs :). Makes me feel somehow connected to them. If I had a consumer internet idea, they might even be on my short list of people to talk to just for that reason. Unfortunately for me, not as many energy techies/founders are web/blog/tweet savvy, and hence it is harder for me to reach them via social media. No wonder few cleantech VCs blog/tweet.

I like to think smart VCs are hypothesis driven, but they often don’t get enough time to vet their ideas out as deeply as they would like. So blogging, tweeting etc provides a way for VCs to get feedback on their thoughts and ideas. I, for one, also like to be connected to the community around me and by putting my opinions out there I feel better even though I stand the risk of being misunderstood, misquoted, disagreed with and/or even publicly embarrassed.

At least the entrepreneur community tends to pay attention when a VC speaks. VCs can utilize that podium to promote their portfolio companies. Nothing wrong with that – in fact I love it. I noticed that a few VCs even have links to news articles about their portfolio co’s as a part of their signature profile. (Now that I think about it, about 10-15 years ago having famous people’s sayings at the bottom of your signature file was the ‘in- thing’. That was kind of a tweet, no?)

By all measures, most VCs get less printed press/PR time than they may have had as an entrepreneur or an executive. Even young startups often hire PR firms who try to get interviews/profiles etc into trade rags and big journals. Could it be that all the entrepreneur-turned-VCs miss that exposure to media and utilize the blogs/tweets just to be famous for the heck of it?

So why do VCs blog and tweet with such frequency? I can’t speak for all 129, but here’s why I do it:

1 I love to write. Simply put, I enjoy words, language and the challenge of expression and composition.

2 Creative expression. As a VC, I can’t exert my creativity in the same way that I did when I was an entrepreneur. My blog is one productive yet harmless outlet to express my creativity.

3 Educational. There’s an old adage that if you truly want to learn something, teach it to someone else. Forcing myself to explain the VC business to entrepreneurs through my blog has pushed my own thinking and required me to study issues more deeply than I might otherwise have done.

4 Transparency. The VC business can be an intimidating business to many. I am an iconoclast at heart. As a former entrepreneur, I particularly enjoy breaking down barriers and making the VC business more accessible and transparent for others.

Predicting trends for the next year is a silly exercise. But oh well. We all play silly games some times. I will check back at the end of 2010 to see how wrong I may have been.

Hot in 2010:

– Water: This is a darling of VCs despite the fact that very few people have actually invested in the space. But I think people will start to get their act together here finally. Invested technologies may not necessarily be in drinking water per se, which is the holy grail, but in industrial/municipal/commercial cleanup applications.

– Biochemicals: Now that VCs have gone soft on biofuels, there will be more interest in the biomass to biochemicals space. DOE has 12 platform chemicals that would be high value add to make, and then there are a number of companies pursuing diff polymer chemistries. VCs like the fact that you can potentially build smaller plants that are still profitable.

– Motors/generators: Old school and probably not so sexy…but markets are large, innovations have been few in the past decades, and applications in electrified vehicles to industrial robotics to high efficiency HVAC are making this an interesting segment again.

– Next gen energy storage: A123 euphoria is eroding a bit (or so I hope), and people will start to look beyond Li-ion for both automotive and grid storage applications. There are some who will wait for cheap Chinese Li-ion to arrive in the US (esp for grid storage applications), but the technophiles are already looking at all solid state, metal-air and other battery chemistries.

– Waste heat: We have seen a few companies invested in this space, but this will be a growing trend. Not just thermoelectrics, but also heat-engines and other mechanical technologies for utilizing low-grade and medium-grade waste heat. People will find applications in developing countries as well, e.g. India.

– Small wind: Is this going to be the year that small wind technologies will finally demonstrate the performance they promise? I think we might see some interesting fundamental innovations to make it more real.

– Balance of System: VCs learnt a few new words in 2009, and ‘Balance of System’ costs were among them. With pressure on solar/LEDs etc for rapid cost cutting, there will be more investments in equipment and other businesses that bring these costs down.

Not-so-hot in 2010:

– Biofuels: Despite some investments in the algae fuel space in 2009, it will take some time for investor confidence to return to the biofuels space. At least a few of the companies that have now raised hundreds of million of dollars would probably need to find an exit for their investors first.

– Solar PV: Another casualty of the financial downturn and the China factor in 2009. Investors remain unclear how big the technical/cost disruption needs to be for a new player to emerge successful. Investments will be slow until market conditions improve and inventory declines.

– Smart grid: This must have been the hottest sector in 2009. But now there are credible worries of a hype in the sector. So I think VCs will go into a watch and track mode.

– Electric cars: The year started off with new electric auto OEMs trying to raise capital as future tech platform suppliers to the big OEMs. And then the gov’t came and infused billions into them directly as well as into their suppliers. Now the same companies are gearing for an IPO, riding high on gov’t dollars.

– Algae fuels: I just don’t see how the current technologies scale and become cost-effective. Is there a venture play here at all?

– Concentrating PV: 2009 was a difficult year for CPV players. It was hard to raise money and they all needed to get to large scale for costs to come down. 2010 might also be a difficult year for many of them. The upfront capex is still too high compared to CSP and rapidly declining non-concentrating PV costs.

– Project development: Lack of project finance scared VCs from companies developing infrastructure projects. While project finance may start to flow (or so I hope), it will still take a while for VCs to get comfortable with such capital intensive projects. Eventually this space should see lots of action.

I am often asked what are the areas within cleantech that General Catalyst focuses on. Well, that’s kind of a hard question to answer. Despite what other VCs may try to tell you, VCs are opportunistic and would jump onto any great opportunity regardless of space. A better question might be around areas where the VCs may not invest. It is possible for VCs to write certain spaces off for good reasons: LP concerns, capital intensity, IP quagmires, regulatory risk etc…

When asked about GC cleantech investments, I like to talk about how we view our portfolio. Our investments tend to categorize in three broad buckets:

(a) Deep science projects: These are deep technology startups that often emerge out of academic labs. Many materials science based companies tend to fall into this category. Innovations tend to be in labs of faculty that have spent a long period of time investigating the space, and eventually broke ground on something that is totally disruptive and game changing. In addition to the innovation itself, our observation is that faculty that has spent a lot of time in the space (not just the past few years), tend to have a large body of knowledge/work that supports the innovation to get commercialized. These investments typically have a long gestation period before exits (tending to 6-10 yrs), and technical risk is usually high. However, the bet is on something that would truly disrupt the industry and create large value along the way. (Examples of GC investments: Mascoma, Lumenz etc)

(b) Engineering innovations: These investments tend to involve entrepreneurs who have solved one or more hard engineering problems in already well established industries. Investment revolves around commer cializing innovative solutions that would transform the industry and create long lasting disruptive change. Technology leadership in such companies could emerge out of academia as well, but often the innovators have significant practical experience in the space and leverage their intimate knowledge of the pain felt by the industry to find the ‘painkillers’. The solution could be at component or system level. Market risk is often less of a problem since industry dynamics are either well established or well understood, but in addition to technical risks around scale up etc, there is often risk around finding the right channel partners to commercialize the innovation. (Examples of GC investments: Modular Wind, Advanced Electron Beams etc)

(c) Infrastructure/projects: This is an area that VCs have typically shied away from. Project based capped returns of 15-25% IRR are not sexy for VCs. But we think there are some rather interesting opportunities here for investment. That does not mean we do typical renewable energy project development investments. We think a project development company could be a strong investment if they are working in an environment where they have some level of ability, access or control over a scarce resource – and having that creates a competitive advantage for companies that also execute well and prove they can deliver on time, budget and plan. Strong execution, plus control over a scarce resource, allows a developer to not just create value from projects on the ground but also from future pipeline of projects. (Examples of GC investments: SunBorne, C12 etc)